AS Agrova Baltics (EGG) Earnings Call Transcript & Summary

Good afternoon. Welcome to Agrova Baltics Investor Webinar. We will begin with the company's presentation after which we will address your questions. You're kindly invited to submit them in writing through the Q&A box that you see below the presentation. For your convenience, the webinar is being recorded, and replay will be available shortly after the call. Now let me introduce today's host, Jurijs Adamovics, founder and Chairman of the Management Board; and Mihails Keziks, CFO and member of the Management Board. Please the floor is yours.

Good afternoon, everyone. Thank you for joining our [indiscernible] now. We can walk you through the regular agenda. We will cover the key indicators than we have will share the industry overview and our performance sales indicators followed by an overview of our financial performance, and then we'll briefly touch upon targets for the remainder of this year. So as you see on the screen now first 6 months of this year, financial were very strong for the company. We have demonstrated a revenue growth of 52%, reaching 16 in revenue in total. We have almost doubled our EBITDA, reaching EUR 6.6 million, which also translated in a gross profit increase of 71% year-on-year basis. Our gross profit for the first 6 months of this year is EUR 7.3 million. And this was largely driven by the increase of production and sales volumes. We sold 34% more ex return on equity that we have reached is 44-plus percent which will be low is very strong for our industry. And obviously, we should not take it as granted us the same return on equity will be made in the second part of this year. about Potambic, -- this is indeed a very strong ROE for the agrifood sector. And the PE ratio that we have demonstrated, I think, shows a very strong signal to our investors that go Baltic stock is a is a very interesting paper to have in your portfolio. In terms of the key highlights, the first 6 months of this year were extremely eventful, both in terms of the milestones reached and some of the achievements that we have experienced. -- most importantly, at the beginning of this year in February, we started implementation of the next investment phase, which in our case is a fifth investment phase. -- which is actually the most ambitious investment program we have ever undertaken. -- cumulatively valued in excess of EUR 30 million. We are advancing with construction of 3 new lanes houses in -- as with a total area of 7,400 square meters. -- insurance houses will be housing 125,000 birds. This is part of our ag production expansion strategy. Once completed, these newborns will add roughly 60% additional production capacity of our barn act. This year is also a very important year for our A facility. We have celebrated a 65-year anniversary of production in -- for those of you who don't know, our Alexa facility is actually the eldest polity factory in the country, and we are very proud of that, that we continue to carry more than 6 decades of novelty production. -- in the better remote part of the country. Also, earlier this year, we have once again verified our compliance to energy audit, which once again repurchase the quality of the energy efficiency systems that we have in place. Coming back to the investment program. We're also developing 1 more site, which is in Mangala region of Latin in a town called rely where we are currently installing equipment for the rig. For those of our investors who don't know currently our LiveM business. is sourcing also the unlock from Polish suppliers. And in the interest of limiting our wire security and operational risks, we have taken a strategic decision to move into growing our port ourselves. So this project is expected to be largely completed this year. And once it is completed, we'll be in a position to grow roughly 0.5 million ports per year on our own side in trading. Another important milestone is a bond program in which the global finance team was working earlier this year, together with our external advisers. We have secured approval from the Central Bank of Latin for the 30 million program. The prospectus is approved. But for the time being, we decided to postpone its implementation, as we are currently working on a cheaper funding options with commercial max here or a. Fee tech business is also growing expanding beyond last year. Our exports are growing. We are adding up new products and -- we're happy to report that during the first 6 months of this year. Our retail business had reached 33% repeat purchase rate, which is a very good result for the e-commerce platform. Now we'll move into the CEO overview, which will be covered by my colleague Michels.

Thank you, Juli. -- thinks investors and shareholders. So let's go through our regular reports our financial results and also the sales in the market. So as usually, we start with a big picasituation in the market. And here, we, again, can have a look at the market split concerning the type of production, which is very important for our strategy. So -- as previously, we have seen, again, this half year was very good for ag market, all in all 3 countries in total ad market was growing and most rapidly in '20 again. And at showed just slightly below 8% of this growth for -- comparing to the previous half year. And again, considering the share of cafe, you can see that liners Lithuania, which have reached 67 months 67% of the market selling box, which is our main industry. which is a very good result and probably close to the current possible maximum, yes, so we can also see that the Kechave decreased. Only in Lithuania in the last 6 years compared to the previous similar period -- while in Latvia, in Estonia, we can see somewhat similar picture to the 1 we have seen at the year-end. So almost 60% of Bank share in Lake and almost 25% in Estonia. So those markets still have a way to go to introduce the cash free. -- ex share to improve it, yes, and we are waiting for this in the upcoming periods. Let's see what's happened in the next half year. So switching now to our sales performance. Again, let's have a look at standard breakdowns that we are providing. So this 1 is distribution between top to retail and color processing for industry. You can see a slight increase in industry in the first half year of 2026 comparing to the previous half year. But previously, the half year, but it's totally acceptable, I would say, when you noticed that our sales comparing to this respective period grown more than 15%. Yes. So we believe it's totally fine. As a breakdown, again, we bracket considering our own brands and the private labels of supermarket. Again, you may notice some increase in the share of private label brands in our portfolio. But again, as we look at the situation, we consider that 45% to 55% share of private label is a market standard. So we are very well positioned in this regard. And also to notice, as you have seen, our gross profit margins have increased more than 5% point comparing those 2 periods. So increase of private label brands in our sales portfolio by not being impacted our profitability and still was able to achieve this result as we have shown. Next and final breakdown for sales is a geographical breakdown. So as you can see, the share of domestic sales in Lat we have decreased significantly. But again, it's explained among by the situation in the market by the share of as we see in the Baltic states. So as you noticed, tens for a leader between 3 Baltic sites, and so we have exported a lot of our products to Estonia and bringing the domestic sales down to 25% in the last half year. Now let's have a slightly more detailed breakdown of our profitability, what was the main drivers for us to reach the better results for first half year. So again, as you can see, the main improvements between adjusted EBITDA was increase in ex sales and it was massive more than EUR 4.6 million for half year comparing to the previous same period in the previous year. But here, it's important to mention that more than 2/3 of this increase was driven by increase in production capacity in ex volume. And only the rest was as a result of good market conditions that we have. Also, some additional revenues such as also ad products and the Petechiae seen some increase in revenues. On the cost side, of course, bigger production capacity came with a larger amount of hand. So we have notes increase in feed costs. It was very minor. It's mainly due to increase of the feed consumption that is expectable in this situation. On other costs like other production costs and administration and expensive -- the main cost increases was in payroll positions, but also in packaging and distribution other institution expenses. So all in all, you can see that we have almost doubled our EBITDA -- adjusted EBITDA in this first half of the year comparing to the previous reporting period in the previous half year of the previous year. Under the EBITDA, what was the other drivers. -- for our net profit received in the first half of the year. So here again, a significant improvement driven by increased EBITDA adjusted as explained in the previous slide. what was pushing us back and down. It was, again, increase in interest costs because our cheaper shareholder financing was replaced by market financing with slightly higher rate. Of course, depreciation considering significant investment we have done and changes in hand value because we have a much bigger float now also some increase in what price was noticed so. But nevertheless, as you can see, our net profit for the half year is absolutely remarkable and fantastic, and it's more than 2x bigger the respective for net profit for the first half year of 2025. And it's also historical financial results that we have been able to achieve so far. So then live slides for financials and some indicators development throughout a lot respective periods. What we can see here, so at the end of 2023, we have finished our IPO and started our Phase I in investment program. And after that, you can see that from year 2024, up to now, it was constantly and rapidly growing and improving all of our indicators, all of our profits, yes, by significant part. So revenue increased more than 50% and EBITDA was increased almost 2x. But what's more important for Investors, of course, it's increasing our net profit, which increased more than 2x. It is significant, and it is some way also another proof for the historical high net profit we have received for year 2025. And now it's not just an amount and financial figure -- but after end of the first half year, 26, Adobe was able to pay first dividends in its history. -- our dear shareholders. So only this payout provided almost 7% of income for -- comparing to ideal price for our shareholders. but also you could notice that also our prices of robocalls have increased significantly providing additional benefit for our shareholders. So last line I would like to highlight in this slide is, of course, this leverage covenant leverage net debt adjusted EBITDA. So you can see it also is steadily increasing during the last 3 years. And it, of course, doesn't come from the position that we are repaying the loans, we do not the amount of the loan for this period remained more or less stable or almost slightly increasing, but it comes, of course, from the better profitability. But again, it was our strategy and expectations. So we take the debt but we increase the capacity, we get the better results and also leverage covenants go down to the comfortable level of bringing the company to a very nice and healthy financial position by 2026. So we'll stop here. Thank you very much, and conditions.

Thank you, Miguel. So speaking for the key targets for the remainder of this year, Obviously, the management team is very much focused on the completion of the ongoing investment program. We expect that most of the construction will be completed in November this year. majority of the equipment has already reached facilities in Alok and Pele, and we are proceeding to the assembly of equipment together with our equipment suppliers. -- most of which comes from Western Western-based countries. And as I mentioned, we'll add EUR 35 million thousand additional lay hands in Alexa. And we will add a capacity to grow up to 0.5 million for its per year. Also quite important to mention that once the current investment phase is completed, the share of our cage-free egg production will be almost 90%. Grooboltics is already the largest industrial scale care-free ag producer in the Baltic region. -- by completing this investment program will even more, so to speak, some our leadership positions in the high animal welfare standard production. -- the export market expansion is very high on our agenda. Obviously, as you have seen from Mihir slides, the share of the exports continue to grow. It's growth. It's also quite important for us to strengthen our presence in the export markets because as you may appreciate, the new production capacities that we are adding -- these are not meant to satisfy demand from the Wahlin or even Baltic markets, both Latvia and the Baltics at large, we are already more than self-sufficient as nations. So all this additional capacity is going to boost our export sales. So the efforts of the management team are very much focused on extending the export client base. on which we are working as we speak. So this brings us to the end of our presentation of our slides, and we'll be happy to take on your questions.

Thank you. Many have commented already, participants to add yours, please type your question in the Q&A box that you see below the presentation. We'll start with the first one. What is Agro Baltic's dividend policy? What, if any, dividends to shareholders expect moving forward, including 2027 based on the profit earned in 2026.

Obviously, this is a very important question for any shareholder and investor. Our dividend policy remains intact. So in other words, it remains exactly the same as it was prior to IPO, where we communicated that our intention is to pay up to 50% of the net profit into dividends. why up to 50% because the growth Baltics is a growth story. We will continue to invest both in the anaprotein business and also in the agent businesses and pretty much everything that's related to the processing of the byproduct that we have. For example, some of you probably have also noticed in our previous announcement, We're also working on the organic fertilizer plant. We also have bare and biomethane plants in the pipeline. So actually we still do have quite ambitious investment plans beyond the current investment program, which is currently being implemented. And that explains why we believe that 50% of the profits need to stay within the company to support that growth. Speaking of the possible payout for the profit earned in 2026. I mean as I said, the policy remains intact, but what the shareholders need to understand that even the dividend payout this year was a function of 2 things. One, obviously, we need to have a net profit that can be distributed. Number 2 is we have corridors and obviously, creditors need to approve and dividend payout, and that's always a function of financial covenants being met. So once again, if -- at the time of the distribution of the profits next year, will be in compliance with financial covenants set by our creators, then we'll be in a position to do exactly as we did this year.

Thank you. While Texas results are not specifically shown in the financial results.

Two reasons. One, first and foremost, is the fitter business in terms of its scale and financial contribution remains immaterial. And number two, we believe it represents a commercially sensitive information that can be used to the benefit of our competitors, which, therefore, we believe at the current level of details is sufficient.

Is Fintepla part of AtroBaltics or Auto International.

PTX core trademarks are on robotics and Therefore, a grower international is not benefiting from this business.

Will it be possible to order a larger size of square protein packages?

This is a question we do decide from time to time with our feet export team. But so far, we have not seen the line for larger packaging is sufficiently strong to justify a large-scale production. So for the time being, we will be sticking with the current sizes plus the smaller side is actually a few months ago into these sashes. So the small portions that help minded consumers of protein can take small packages on the go or the travel or practice sports outside and just need ready to serve packages.

Are there any plans to sell liquid ag whites in public stores like remaxima?

We actually do so liquid products to large B2B accounts, including some of the largest retailers currently, most of it goes into the food service department of specific retailers where they produce ready-made food. Our wide liquidate offering is currently limited for the retail consumer is currently limited to the white proteins, which are sold under the trademark Fedex part and are available in quite a few supermarkets across the Baltic states already.

Now from product to projects, are there any updates on natural gas project that was mentioned when preparing for the IPO?

Yes. Actually, as I mentioned, it is in the pipeline due to the geopolitical situation and lack of financing for all our basin projects we decided to post on a couple of years ago. Now it's back in the pipeline. We are working on the technical and engineering paperwork. So depending on the progress and availability of funding and the prices of funding we might decide to pursue this project in 2027.